Leap year’s Tsagaan Sar has given our politicians a great opportunity to intensify their election publicity. The Government of Mongolia greeted the year of the Water Dragon with all kinds of promises, awards and prizes and the top government officials were competing with the colors of their deels and large sizes of their snuff bottles.
The total number of prizes for best herdsmen, best farmers, and others awarded for this year’s Tsagaan Sar was three times more than the average number of that of the previous years. Somehow, those awards went to electoral districts, where our ministers and Government officials either were elected or going to be elected. In any case, the political elites were pretty busy handing out the awards in person during the national holiday in the constituencies, where they were going to be nominated.
Just before the long holiday break, the Government announced a decision that brought hope to thousands of people that they could have an apartment of their own for a low price. The Government stated that they would start granting 20-year long apartment loans starting in April with interest rates of 6%, which is three times lower than what the market offers. The Development Bank of Mongolia will sell Government guaranteed bonds worth MNT 200 billion to retail banks and the income from selling bonds will constitute the payment for apartments.
D.Khayankhyarvaa, the recently appointed Minister of Finance, Ts.Dashdorj, the new Minister of Roads, Transportation, Construction and Urban Development, and G.Munkhbayar, the Mayor of Ulaanbaatar have sanctioned terms and conditions of these soft loans, which will be provided to people through retail banks.
These three organizations suddenly remembered that they had set up a Housing Corporation some time ago in order to grant the loans and monitor construction work. However, retail banks are to be involved. Things are still to be made clear on exactly how many families will benefit from this program, how realistic it is, what the real cost of the program is and who covers the cost.
What constitutes apartment prices in Ulaanbaatar?
According to what the Mayor of Ulaanbaatar, one will get a loan of up to MNT 50 million and must pay an advance of 10%. This means that half of 9,000 apartments with 55 square meters space, which are currently being constructed, will be sold with 200 billion from the Development Bank. A square meter is priced at MNT 1 million on average, which is today’s market price.
The price of a new apartment in Ulaanbaatar is constituted of three parts. Bribes paid for obtaining the land and other building related permissions make up one-third of the price. Another third is constituted by interest rates of commercial loans, borrowed by construction companies and paid to commercial banks. The rest is made up of the cost for purchasing building materials and labor. It has recently been announced by the media that the cost of one square meter was 330,000 MNT when the General Court Decision Department of Mongolia had apartments built for its employees. This public agency had the apartments built on its own land and the State Inspection Committee stated that the apartments were of good quality. From this, we can see what the real cost is.
Cost of bad governance
Ulaanbaatar’s land mafia gets one-third of a new apartment’s price before it is even built. It is no longer a secret and has been going on for years while people can do nothing about it. When every Mayor of Ulaanbaatar puts the blame on the predecessor and continues the land trade, apartment prices go up, which forces people to pay more. This habit has become the main feature of the capital city management of democratic Mongolia.
This mafia is truly afraid of expanding the city’s infrastructure. They do their best not to build more water pipelines, roads, and energy infrastructure. It is because they are afraid of losing their opportunity to secretly sell land such as sport grounds of schools, playing grounds, and parking lots at high prices.
If the infrastructure is expanded, their unlawful gains will shrink. That is why the capital city of Mongolia, which ranks the 17th in the world by area, has no sidewalks and designated parking lots. Mayor G.Munkhbayar, after turning the city into such chaos, had asked monks pray for Ulaanbaatar inhabitants well being on Tsagaan Sar. Could not he do a bit more?
The Mayor of Ulaanbaatar and his accomplices keep it a secret how much they gain by selling public property and what they do with the money. The latest example is that they are done with “zaisan”-ing the Yarmag area. Everyone from city administration to central government officials is afraid of talking about whom they sold this land to and at what price. Even the President, who does nothing except talk about bringing justice, is not saying a word about it.
If every such thing we talk about, made clear and stopped, prices of new apartments could be lowered by 30%. Only good, transparent governance can do it.
Financing cost
The Development Bank Bonds worth MNT 200 billion, guaranteed by the Government will be issued shortly and later the Ministry of Finance will pay the principal and coupons from the budget. In such case, commercial banks might get the bonds. However, in order to attract retail banks, this bond coupon must be higher than the bond coupon issued by the Government already. At the moment, the bond coupon of the Government issued bonds for supporting small and medium enterprises is 12% a year. It means that the bond coupon of apartment loans must be the same or higher. Furthermore, today it is impossible to issue bonds for over two years and new bonds must be issued for 20 years. This means that the future debts of the Government will keep increasing.
Retails banks are ordered to grant these housing loans at interest rates of 6%, which means that if the operating cost is to be 3% at the minimum, banks will have a profit income of 15%. This does not actually lower today’s financing cost of apartments. 12% of today’s market interest rates of 18% are paid with tax and other budget incomes. On the other hand, it makes sure that retail bank interest rates in Mongolia are not decreased in the next 20 years, which will keep interest rates of business loans that high.
The election year’s budget once again reminds Mongolians that the Government must reduce its cost if we carefully calculate what is being created at what price.
If we manage to improve governance and stop the land mafia, land in ger districts can be registered as property and brought into the market and, by encouraging residents’ participation, they will be able to have apartments at lower prices in no time. Providing people with apartments is a right thing to do and it can be achieved promptly if land bribes are stopped along with the mafia.
Translated by B.Amar